Author Topic: Scared of stocks  (Read 9222 times)

ChpBstrd

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Re: Scared of stocks
« Reply #50 on: December 23, 2016, 09:33:22 PM »
Even if you could figure out a way to get a little bit better of a return, it still is too much like WORK.  I'm trying to get away from work, not add more crap to my plate.

True. Spending my Saturdays at a part-time gig would yield a lot more than investment research. There is a point of minimum-level-of-awareness-to-invest and another point of diminishing returns.

ChpBstrd

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Re: Scared of stocks
« Reply #51 on: December 23, 2016, 09:58:06 PM »
There's a ton of money invested in everything, so everything is yielding pretty meh returns.

C'est la vie, you're not going to outsmart the market and there's no secret idea that's going to make you rich. You already said you're not interested in real estate, and that's probably your only/best bet for what you're going for.

I'm actually a fan of efficient markets theory. I've seen the research that passive investing wins the highest yields. I've tried making predictions and performed worse than coin flips. Yet, the markets can be shown not to be "efficient" or even "markets" in the sense that investors have a choice to buy or not buy.

First of all, not all dollars are invested based on the choices of individuals with incentives to earn high returns. Pension plans, ETFs, some sovereign wealth funds, and individual 401(k) plans must make regular purchases no matter what the price. Thus, there is a steady buying pressure that is maintained no matter how high the market goes. Furthermore, the managers making or automating these buys are doing so on behalf of others (or thousands of others) and have no skin in the game themselves. Thus the "market" is not a "marketplace" at all. It's kind of an automated buying machine that doesn't stop at any commonsense level. How does price discovery work when almost everyone is passive? This market is very different than a few decades ago, when the theory was proposed.

Second, there is evidence indicating that the vast majority of the S&P 500's post-crisis growth was due to government stimulus. If this is true, an assumption of efficient markets theory doesn't hold in the real world case. Price is not based on information, but on price supports. http://finance.yahoo.com/news/the-fed-caused-93--of-the-entire-stock-market-s-move-since-2008--analysis-194426366.html

Perhaps at any given timeframe it is impossible to predict which investment option will outperform. However, if an offensive game is impossible because the markets are efficient, I wonder if a defensive game is still a possibility. Maybe 1999 and 2007 were good times to turn off autopilot and play it safe, because multi-trillion dollar bubbles could be seen. Maybe the hyperbolic arc in Chinese stocks in early 2016 could have been recognized by a human as a sell signal.

marty998

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Re: Scared of stocks
« Reply #52 on: December 23, 2016, 10:50:59 PM »
Perhaps at any given timeframe it is impossible to predict which investment option will outperform. However, if an offensive game is impossible because the markets are efficient, I wonder if a defensive game is still a possibility. Maybe 1999 and 2007 were good times to turn off autopilot and play it safe, because multi-trillion dollar bubbles could be seen. Maybe the hyperbolic arc in Chinese stocks in early 2016 could have been recognized by a human as a sell signal.

I am reluctant to call that thing they have in Shanghai a "stockmarket".

At least in a casino they let you cash your chips when you want to.

waltworks

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Re: Scared of stocks
« Reply #53 on: December 24, 2016, 07:56:56 PM »
Self-contradictory rambing...

You are not going to outsmart the market by being "defensive" either. Because sometimes the market spikes way up... and stays there until earnings catch up. You sold? Too bad.

It's a random fucking process that trends up. Act accordingly.

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PizzaSteve

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Re: Scared of stocks
« Reply #54 on: December 25, 2016, 10:07:37 AM »
Schiller CAPE is a useless ratio... see Jeremy Siegel's analysis.  If reading in detail about changes in FASB accounting standards and their effects on valuation metrics doesn't interest you, and if you don't have a strong grasp of how inflation and interest rates influence relative valuation across time periods, I'd suggest that market timing is not going to work out well for you.  Invest at a risk tolerance that your comfortable with and ignore what you might perceive as an overpriced market.

http://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n3.1

Agree.  You are letting your brain get in the way of doing the right thing.  Consider that all your thinking and market analysis is most likely useless in determining your best investment strategy.

Mighty-Dollar

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Re: Scared of stocks
« Reply #55 on: December 25, 2016, 02:57:53 PM »
As an investor, I've lived through the dot-com crash and the 2007-8 financial crisis, which sets my fear baseline.
Have you ever heard of bonds? http://investingadvicewatchdog.com/diversification.html

dougules

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Re: Scared of stocks
« Reply #56 on: December 27, 2016, 08:24:34 AM »
... there's no alternative that's not affected by an efficient market distributing low returns across all options...

My own personal investment strategy is to go passive as much as possible. And I've thought this for decades. (I was recommending the cheap index funds then available 25 years ago in the computer how-to books I was writing...)

But while passive works really well for most of us, it sure seems like the rules and landscape change once you get into alternative asset categories like absolute return investments, real assets (like oil, timber, real estate) and private equity. In those categories, the market is not very efficient at least according to some of the good data available.

Interesting.  Is it possible for me and the mere mortals reading this to take advantage of that, though?  And how risky is it?


Even if you could figure out a way to get a little bit better of a return, it still is too much like WORK.  I'm trying to get away from work, not add more crap to my plate.

+1


There's a ton of money invested in everything, so everything is yielding pretty meh returns.

C'est la vie, you're not going to outsmart the market and there's no secret idea that's going to make you rich. You already said you're not interested in real estate, and that's probably your only/best bet for what you're going for.

I'm actually a fan of efficient markets theory. I've seen the research that passive investing wins the highest yields. I've tried making predictions and performed worse than coin flips. Yet, the markets can be shown not to be "efficient" or even "markets" in the sense that investors have a choice to buy or not buy.

Honestly I don't see market efficiency as an absolute.  It's more that the market is more efficient than me, and I'm pretty sure it's more efficient than everybody reading this thread. 

Quote
First of all, not all dollars are invested based on the choices of individuals with incentives to earn high returns. Pension plans, ETFs, some sovereign wealth funds, and individual 401(k) plans must make regular purchases no matter what the price. Thus, there is a steady buying pressure that is maintained no matter how high the market goes. Furthermore, the managers making or automating these buys are doing so on behalf of others (or thousands of others) and have no skin in the game themselves. Thus the "market" is not a "marketplace" at all. It's kind of an automated buying machine that doesn't stop at any commonsense level. How does price discovery work when almost everyone is passive? This market is very different than a few decades ago, when the theory was proposed.

Is it, though?  It's possible that passive investing is leaving price discovery more and more to people that are making choices based on homework instead of hunches.  I've kind of been curious about this idea, though.  There have to be some economists that are performing empirical research on how massive passive investment affects prices. 

Making money isn't about buying and selling, anyway, as much as it is about owning a chunk of the economy and collecting slow steady returns. 


Perhaps at any given timeframe it is impossible to predict which investment option will outperform. However, if an offensive game is impossible because the markets are efficient, I wonder if a defensive game is still a possibility. Maybe 1999 and 2007 were good times to turn off autopilot and play it safe, because multi-trillion dollar bubbles could be seen. Maybe the hyperbolic arc in Chinese stocks in early 2016 could have been recognized by a human as a sell signal.

I am reluctant to call that thing they have in Shanghai a "stockmarket".

At least in a casino they let you cash your chips when you want to.

Hence the reason China still only has 2% of the world's market cap. 

MichaelB

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Re: Scared of stocks
« Reply #57 on: December 27, 2016, 08:51:57 AM »
http://www.ci.com/orderform/pdf/general_marketing/idontwant_poster_e.pdf

I count 7 "market too high" reasons. Plus "Irrational Exuberance," which probably counts as the same thing. Of those, only 2 were followed by lower numbers the next year.

Scandium

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Re: Scared of stocks
« Reply #58 on: December 27, 2016, 11:57:27 AM »
Regarding the comment about TINA (There Is No Alternative, to buying stocks or bonds), I have to disagree. There are always alternatives to the securities markets. I could:

1) buy & rent out residential real estate
2) invest in home improvements such as insulation
3) buy precious metals (essentially random return)
4) sell options spreads and harvest time decay
5) buy art / collectibles
6) personal lending
7) direct real estate investment sites
8) flip assets bought at a cash discount
9) buy or build a small business
10) buy education, e.g. programming
11) invest in timberland
12) subdivide semi-rural property
13) patent some ideas
14) buy mineral rights
15) short the market
16) sit in cash, avoid a crash
17) build / lease a billboard
18) illegally subsidize a family member's term life insurance
19) buy TIPS
20) buy a parking lot
21) buy a commercial building
22) preventative maintenance on household systems, car
23) buy LASIK eye surgery
24) Pay down the mortgage
Etc...

Though maybe good ideas, with a few exceptions those are more JOBS than passive investments. I want to invest the proceeds from my current job, not find another to replace this one.